Thank you Eric. I want to thank the Commerce Department’s Bureau of Industry and Security for hosting this important conference and for having me here today. It is my pleasure to be able to speak with you today about the Administration’s hard work to reform our export control system. At the heart of our reform effort is the Administration’s goal of strengthening our national security. And that’s what I want to talk to you about today.

Many wonder what the State Department’s role – as the lead diplomatic agency – is in the area or exports. Because the transfer or export of items to countries for military use has clear foreign policy implications and is fundamentally a foreign policy act, the State Department oversees and authorizes all arms sales and transfers. It is therefore the Secretary of State that has the authority to oversee and authorize all items on the United States Munitions List - and it is the Bureau of Political-Military Affairs, which I oversee that implements this authority to ensure any transfer is fully in line with U.S. foreign policy.

All sales and arms transfers are reviewed and rigorously assessed through the Conventional Arms Transfer Policy. We only allow a transfer of items after we carefully examine issues like human rights, regional security and nonproliferation concerns and determine that a sale is in the best foreign policy and national security interests of the United States. Review and monitoring are also an integral part of our work. We work to make sure that items of U.S.-origin are being used in the manner intended and are consistent with our legal obligations, foreign policy goals, and values. If a license or transfer is approved, recipients are bound by end-use restrictions and conditions. This grants U.S. government officials full access to monitor how that defense article is being used throughout its lifetime. We also investigate all potential violations and take appropriate action depending on the nature and scope of the infraction.

Despite our high bar for approving transfers and our aggressive monitoring, more and more countries want to partner with the United States. In fact, even with the global economic strain, demand for U.S. defense products and services is stronger than ever. In Fiscal Year 2011, in the area of Direct Commercial Sales there was a more than $10 billion increase in items authorized for transfer. These sales support tens of thousands of American jobs, which is welcome news in this economy.

This security cooperation is also critical to our national security. For a country to be willing to cooperate in the area of national defense – perhaps the most sensitive area for any nation – they have to be sure about the nature of the relationship with the United States. When a country buys an advanced U.S. defense system through our Foreign Military Sales, Direct Commercial Sales, or Foreign Military Financing programs, they aren’t simply buying a product, they are also seeking a partnership with the United States. These programs both reinforce our diplomatic relations and establish a long term security relationship.

The complex and technical nature of advanced defense systems frequently requires constant collaboration and interaction between countries over the life of that system – decades in many cases. This cooperation therefore helps build bilateral ties and creates strong incentives for recipient countries to maintain good relations with the United States. The fact that more countries want to deepen their defense trade partnership with the United States is a sign that our broader diplomatic efforts are having an impact. We have seen tremendous growth in sales with developing countries and emerging powers, such as Brazil and India. And the increase in the defense trade speaks volumes about our diplomatic efforts.

We also know that building strong defense partnerships with our allies and partners in today’s complex global environment is essential. The United States military can’t be everywhere and we need our allies and partners to be capable of responding and contributing to collective security challenges. The defense trade is critical to both empowering our partners and increasing their ability to operate side by side with the U.S. forces.

At the State Department – when we deem that cooperating with an ally or partner in the security sector will advance our national security, we advocate tirelessly on behalf of U.S. companies abroad. And I have the frequent flier miles to prove it.

It is no longer just our Ambassadors who promote U.S. security cooperation abroad. Senior State Department officials regularly advocate on behalf of U.S. bidders on foreign government and foreign military procurements. We do so when we meet with officials on our travels abroad, on the margins of international conferences, and in regular diplomatic correspondence with foreign government officials. These efforts have clearly had an impact. For many countries procurement decisions aren’t simply based on the specifications of the given system. Our advocacy helps demonstrate that the U.S. government believes these sales are critical to our diplomatic relationships.

However, we also know that countries that are not our partners may seek to acquire sensitive technologies from the United States. As the defense trade expands, as supply chains become more integrated and complex, and as U.S. companies increasingly collaborate with foreign partners, the strain put on our aging export system has only increased.

One of the major problems is that the current system tries to protect too much. The scope of controls for the U.S. Munitions List applies to anything that is specifically designed, developed, configured, adapted, or modified for a military application. This effectively means trying to control everything – from the weapon system itself, to every nut, bolt, and screw that may be used on that system. This is particularly onerous because the system was developed when cell phones were a novelty and long before the Internet became a virtual necessity. But not only does it try to control everything, the current system generally treats all items the same and applies the same controls across the board. For instance, the system doesn’t distinguish between a generic bolt on the F-16 and the F-16 itself. This, to say the least, is nuts. And, as you can imagine, the lack of prioritization puts enormous and strain on licensing and enforcement resources and makes it extremely difficult to focus on those items that warrant more scrutiny and control. This means that items could end up where they shouldn’t with the potential that we cannot effectively prosecute violators. Furthermore, the broad scope of controls without prioritization imposes significant costs on U.S. firms – both in time and money – to comply with the controls.

Therefore at this critical geopolitical moment – when it is increasingly vital to our national security that we build new security partnerships and protect our sensitive technologies – it is clear that our current export control system isn’t up to the job. Upon coming to office in 2009, President Obama recognized that change was needed. He saw that our ability to partner with countries, while at the same time protecting sensitive U.S. technologies was being put at risk as a result of our antiquated, overlapping, and unnecessarily complicated system of export controls and regulations.

This provided the President with a choice in how to move forward to fix the system. He could either grow the size of government by adding more licensing and enforcement personnel to cope with the expanding defense trade. Or he could seek to fundamentally reform the system. The President chose to fundamentally reform the system.

There are two broad national security reasons why this reform effort will better protect our national security.

First, it will allow us to better protect the sensitive items that are critical to our national security. Our export control reform efforts are ultimately about making sure that our system appropriately protects the things it needs to protect and prioritizes how we protect them. To that end, we are focusing our efforts in the near term on the re-write of the U.S. Munitions List, or USML, and the Commerce Control List, or CCL, to create clear bright lines between munitions and dual-use items. Our work is focused now on the removal of the majority of parts and components from the USML to the CCL in these categories. They also will remove some end items, including unarmored military vehicles, cargo and utility aircraft, auxiliary surface vessels, and commercial communications satellites from the USML. We are working category by category, using objective rather than subjective criteria, to create that bright line between the USML and the CCL. We are making progress in this effort. Commerce is publishing the corresponding CCL categories at the same time to preclude gaps or overlaps in jurisdiction coverage.

The reforms are intended to more stringently protect our most sensitive items. This means that we will be able to focus our efforts more aggressively on ensuring that sensitive items do not go to end-users or end-uses of concern. It is important to note that this is not an effort to decontrol. Rather, it is an effort to prioritize our controls. When items are transferred from the USML to the CCL they remain on a U.S. export control list and are thus controlled. Items that are “specially designed” for a military application will have the same export restrictions to proscribed destinations, including China, as under the State regulations. Military items currently on the Commerce Control List will also be subject to these same export restrictions, resulting in a tightening of U.S. arms embargoes.

This reform effort will also mean we will be better able to go after violators. Earlier this year the Administration formally opened the Export Enforcement Coordination Center or the E2C2. It is already ensuring better coordination and information sharing across our law enforcement and intelligence communities to bolster our ability to enforce our controls. This also builds on our toughening of our legal authorities. Working collaboratively with Congress, we harmonized the various export control violation criminal penalties to a standardized maximum to make U.S. controls on exports to sensitive and sanctioned destinations more effective. Instead of merely the cost of doing business, the penalties are now up to $1 million, 20 years in jail, or both.

Secondly, export control reform is about improving our ability to partner. Our current export control system can deter countries from wanting to work with us and can inhibit our ability to increase our interoperability with our partners. In an era of tight defense budgets, it is imperative that we build more robust defense partnerships, not fewer. Our reform efforts will also allow us to streamline access to export controlled items for our close allies. Moving items to Commerce provides the United States with greater flexibility, which will streamline our ability to support our Allies and partners – resulting in greater interoperability and less onerous requirements for exporters. This will also improve our ability to effectively control items, while at the same time bolstering the long-term health of our defense industrial base.

In today’s fiscally constrained times, we are all seeking to do things more efficiently. For instance, with its “Smart Defense” concept, NATO seeks to assist member nations build greater security with fewer resources. Our export control reform effort will allow our allies and partners that have committed to implementing export control rules to receive special treatment that will facilitate inter-operability of our forces and secure exports. For example, as you know, the Department of Commerce created the new license exception “Strategic Trade Authorization” or STA that permits the license-free export of many items on the Commerce Control List. STA can apply to exports to thirty-six countries – including NATO members and countries like Australia, Canada, New Zealand, Japan, and South Korea. This exception already eliminates about 3,000 Commerce licenses annually. And as we incrementally publish the final rules for our rebuilt lists, it will become a more robust tool to streamline defense exports, which will facilitate an increase in trade and cooperation.

Reforming our export control system is certainly a massive undertaking. And before I close I want to address some who may doubt that we will get this done. I know because so many have tried and failed to reform our export controls that there is skepticism out there that we can finish this effort. So let me be very clear: any speculation that ECR is stalled is absolutely false. As you will hear throughout the conference, we are making significant progress.

Our goal has been to complete the list reviews and publish the revised control list categories in proposed form this year, and to publish the revised categories in final form on a rolling basis. That remains the goal. We are working category by category, to create that bright line between the USML and the CCL. We have almost finished our interagency work on all the list categories. We have people from across the interagency working hard on this as we speak, and we are committed to meeting the goal.

This has been a long tough slog, but we can now see the goal line. So to suggest or infer that we are somehow losing momentum when we are this close, is just wrong. By January of next year we will have either crossed the goal line, or we will be so close, that whoever is in these jobs will just need to dive into the end zone and do a touchdown dance.

The results of all our work are within reach – a modern export control system that better protects our national security with all the benefits that come from that – better interoperability with our allies, a healthier defense industrial base, and less red tape. This means it will be easier to export, which is good for the economy and for maintaining and creating jobs.

So with that, I want to thank you all for having me here today. And I especially want to thank Assistant Secretary Wolf – who you will hear from shortly – for his hard work on this issue. Although there is an unprecedented degree of senior level support for the reform effort, we would not have been able to make the progress we’ve made so far without the day-to-day cooperation among the Departments of State, Commerce and Defense – Kevin’s efforts have been key to making that happen. We will continue to work hard to get this done so that we will have a system that benefits U.S. national security, U.S. exporters and our allies and partners.